The ICC and Network Neutrality

My new network neutrality paper has prompted a cogent criticism from Steve Schultze at Harvard’s Berkman Center. Since Steve has helpfully broken his critique up into two parts, I’ll deal with them in turn. Here’s his first point:

The gating question is whether or not the elements of the Interstate Commerce Commission that led to the inefficiencies that Lee claims are at all related to the non-disciminatory language that he claims connect the two. If and only if the answer is “yes,” then a responsible analysis would consider whether or not the markets are relatively analogous, whether or not the administrative agencies tend toward the same failures, and whether the costs of regulation truly outweigh the benefits. In short, it is not enough to simply assert that net neutrality smells like the ICA, therefore it is doomed to fail.

I think this rather badly misunderstands the thrust of my argument with respect to the ICC (and the CAB and FCC). I’m absolutely not claiming that enacting network neutrality regulations will lead to exactly the same policy failures that befell the ICC. This would be a silly thing to argue, especially since (we hope) policymakers learn from their mistakes and take steps to avoid the precise mistakes they made in the past.

So my point is not that “net neutrality smells like the ICA, therefore it is doomed to fail.” Let me re-state my point this way: imagine putting yourself in the shoes of an average member of Congress in 1887. You’re worried about the monopolistic behavior of the railroads, and you’re about to vote on legislation that will require rates to be reasonable, non-discriminatory, and so forth. You would be extremely surprised to learn that the commission whose creation you just supported would wind up working primarily to limit competition and lining the pockets of incumbent railroads. That’s not what the legislation said it would do, that’s not what you intended to accomplish, but it turns out that’s what actually did happen.

Now imagine it’s 2009, and you’re a member of Congress deciding whether to vote on legislation. You’re worried about the monopolistic behavior of the telcos, and you’re about to vote on legislation that will require their routing policies to be reasonable, non-discriminatory, and so forth. My point is simply that there’s a significant probability that the practical effect of that legislation will be very different from what you or the legislation’s authors intended. And that history tells us that the regulatory process has a systematic bias in favor of well-organized incumbents and against poorly-organized consumers. And so if you’re going to give a regulatory agency more power, you’d better be absolutely certain you know what you’re doing, because any mistakes are likely to benefit industry incumbents at the expense of consumers.

What specific problems will we have? Well, it’s hard to say. That’s why it’s called “unintended consequences.” If we could predict exactly how legislation would be applied, the argument for regulation would be a lot stronger. My point is that precisely because it’s hard to predict how regulation will be applied, and because industry incumbents have more influence than the rest of us, we shouldn’t be too cavalier about giving regulators more power.

With that caveat in mind, I do point to some aspects of popular network neutrality proposals that could lead to problems. Most importantly, I have yet to see anyone produce a clear and unambiguous definition of network neutrality. Indeed, network neutrality advocates disagree among themselves about such issues as prioritization and DNS servers. Legal ambiguity creates a variety of problems, including discretion in the hands of regulators and increased difficulty for private-sector actors to determine what the law requires of them.

But to demand that I predict exactly what problems network neutrality legislation will cause is to miss the point. One of the biggest reasons reason we should be reluctant to enact network neutrality regulation is that legislation often has untintended consequences. Now, obviously that doesn’t mean that regulation is never a good idea, but it does mean that we should regard regulation as a last resort to deal with clear problems we can’t solve in other ways. It’s not a good way to deal with the kind of highly speculative threats that are the bread and butter of network neutrality activists.

I'm delighted to be debating this with you. Your post helps clarify some issues. For example, you say:

“My point is simply that there’s a significant probability that the practical effect of that legislation will be very different from what you or the legislation’s authors intended. And that history tells us that the regulatory process has a systematic bias in favor of well-organized incumbents and against poorly-organized consumers.”

Your point is that regulation often does not accomplish what it was designed to do, and causes unintended consequences. I grant your argument.

What your argument doesn't address is the fact that in this particular case we have a very strong and specific historical precedent for success of this type of regulation, versus your general and well-put argument that regulation often goes awry. It is of course impossible to predict exactly what problems network neutrality legislation would cause (or any regulation for that matter), but a reasonable analysis would assess their likelihood in light of the best data points we have. This analysis would include balancing this against the probability that some other force would solve the problem with less collateral damage — the subject of the second half of my critique.

As for ambiguous legal definition, I'm on your side. However, I do not think that diversity of viewpoint in the scholarly community leads inevitably to inexact legislation (or rulemaking as the case may be). In short: we can figure it out (after all, we have before).

http://bennett.com/blog Richard Bennett

Indeed, Tim's argument against net neutrality regulations is weak and non-specific. It's a good reminder that advocates only make arguments about unintended consequences, slippery slopes, and camel's noses when they've lost the argument.

Let me offer an alternative argument against network neutrality regulations: there is a significant gap between the reality of the Internet's operation as a public network and the rhetoric of net neutrality supporters. Enacting regulations based on this rhetoric would substantially alter the Internet, and would do so for the worse. Network operators do not simply forward packets first-come-first-served to anybody and everybody for the end-to-end layer to sort out; they discriminate in all sorts of ways to provide good service to as many people as possible at a reasonable price.

Network neutrality is an attempt to shackle the Internet with regulations that mirror a failed model of network architecture, to give a victory to a failed vision by government fiat that it could not achieve in the market.

Even if you don't accept that argument, there's another reason that the proposed regulations should be rejected: the Internet is a technology, and technologies can always be expected to improve over time as parts to build them become cheaper and faster. Net neutrality is a backward-looking agenda that seeks to freeze the Internet core at a particular level of technology. This can only have the effect of hastening its obsolescence, and make no mistake about it, it will be obsolete some day.

Nostalgia has no place in technology regulation.

http://www.tc.umn.edu/~leex1008 Tim Lee

In this particular case we have a very strong and specific historical precedent for success of this type of regulation

You're talking about Carterfone and the Computer Inquiries? I think it's important to keep in mind the context. Carterfone was a great policy victory, but it was a great policy victory because the previous policy was so terrible. AT&T, remember, had a government-guaranteed monopoly in the telephone market, and didn't allow you to attach anything to the network that it didn't own. This had been the law for decades. So yes, going from that environment of legally-mandated monopoly to a system of regulated competition is a big improvement.

One reason that Carterfone worked so well is that the telephone industry had been basically static for the preceding decades. Because disruptive innovation had previously been completely illegal, there was no need to worry that Carterfone would stifle it. Because the previous system was so bad, Carterfone was virtually all upside and no downside.

This is nothing like the modern Internet industry. As a practical matter, you can attach almost anything you want to most major residential broadband networks in the United States. Some things are formally banned by the providers' terms of service, but these restrictions are rarely enforced.

And unlike the telephone network of the 1960s and 1970s, today's Internet marketplace continues to evolve rapidly. A decade ago, there was no broadband service to speak of. Five years ago, wireless Internet access was outrageously expensive and too slow to be useful. We have no idea what the market for Internet access will look like a decade from now. The Carterfone-era FCC had the luxury of regulating in an environment where few unexpected changes were likely to occur. Today's FCC would be regulating in an environment where changes are a virtual certainty.

Also, it seems to me that you're engaging in a bit of cherry-picking here. The FCC screwed up the telecom market for the bulk of the 20th Century. For a couple of decades from the late 1960s to the early 1980s, they made some good decisions. If you can claim those two decades as evidence that the FCC can get things right, then I can cite the 1930s, 1940s, 1950s, early 1960s, and much of the last decade as examples of how the FCC can get things wrong. Certainly we can all hope that network neutrality regulations turn out like Carterfone rather than the 1930s, but I wouldn't put my money on it.

Brett Glass

I think that Adam's arguments about unintended consequences are good ones, and shouldn't be rejected as desperate. Whenever regulation is imposed, larger and more moneyed players will always have a greater ability to turn the regulations, or the regulatory system, to their advantage than smaller ones. In short, we do not know what the consequences will be (they can, in fact, hinge on single words in reams of regulations and legislation), but we can safely say that they will benefit parties with money and political influence. In fact, as a small, independent ISP, I can say with assurance that I and many of my colleagues will be in danger of extinction under such a regulatory regime. And no large company will step in to fill our shoes in the rural areas we cover. If we're gone, much of rural America will fall off the Net.

Richard is absolutely correct on another point, however: “Network neutrality” is an attempt to shackle the Internet with regulations that, essentially, would turn it into the Bell System of old. (It's no wonder that “network neutrality” advocates always begin their arguments with the false claim that the Internet is a “duopoly” and is therefore already like the old Bell System.) Remember when long distance phone calls cost a dollar or more per minute? When there were serious questions about whether you could even use a modem with an acoustic coupler without connecting “unauthorized” equipment to the telephone network and therefore violating government-backed telephone company rules and regulations? Please, let's not go there again.

sjschultze

You're talking about Carterfone and the Computer Inquiries? I think it's important to keep in mind the context.

I'm talking about the three things I initially mentioned: the non-discriminatory safeguards in common carriage, the Computer Inquiries (particularly Computer II), and Carterphone (to a lesser degree). The first two most closely resemble net neutrality whereas Carterphone is more of a complement. Computer II occurred in an environment especially wrought with technological uncertainty.

I'm not cherry picking in the least. These are the decisions that most clearly relate to the net neutrality debate. They deal directly with non-discrimination and how those mandates apply at different layers of the network.

You'll get no disagreement from me that the FCC royally botched rules from the 30's to the present, and I describe this in the context of broadcast regulation at length in my thesis. But all that this means is that you are arguing that in general regulation tends to go awry, and on that we agree.

There is however a striking blindness on the part of neutrality opponents to the very direct and relevant legacy of successful non-discrimination regulation in the history of telecommunications policy.

http://bennett.com/blog Richard Bennett

Indeed, it would be great if our battling grad students would grasp the fact that the outcome of their argument has already been determined by their mutual acceptance of some sort of telecom regulatory model for the Internet.

The Internet may be hard to understand, but it's clearly not just another telecom network. The FCC has no history of tailoring routing policies and broadband service plans, so if it wants to go in that direction, it had best be out front about it, propose some rules and go through the process. The stealth rule-making model is not helping anybody.

sjschultze

You're talking about Carterfone and the Computer Inquiries? I think it's important to keep in mind the context.

I'm talking about the three things I initially mentioned: the non-discriminatory safeguards in common carriage, the Computer Inquiries (particularly Computer II), and Carterphone (to a lesser degree). The first two most closely resemble net neutrality whereas Carterphone is more of a complement. Computer II occurred in an environment especially wrought with technological uncertainty.

I'm not cherry picking in the least. These are the decisions that most clearly relate to the net neutrality debate. They deal directly with non-discrimination and how those mandates apply at different layers of the network.

You'll get no disagreement from me that the FCC royally botched rules from the 30's to the present, and I describe this in the context of broadcast regulation at length in my thesis. But all that this means is that you are arguing that in general regulation tends to go awry, and on that we agree.

There is however a striking blindness on the part of neutrality opponents to the very direct and relevant legacy of successful non-discrimination regulation in the history of telecommunications policy.

http://bennett.com/blog Richard Bennett

Indeed, it would be great if our battling grad students would grasp the fact that the outcome of their argument has already been determined by their mutual acceptance of some sort of telecom regulatory model for the Internet.

The Internet may be hard to understand, but it's clearly not just another telecom network. The FCC has no history of tailoring routing policies and broadband service plans, so if it wants to go in that direction, it had best be out front about it, propose some rules and go through the process. The stealth rule-making model is not helping anybody.

http://www.tc.umn.edu/~leex1008 Tim Lee

In this particular case we have a very strong and specific historical precedent for success of this type of regulation

You're talking about Carterfone? I think it's important to keep in mind the context. Carterfone was a great policy victory, but it was a great policy victory because the previous policy was so terrible. AT&T, remember, had a government-guaranteed monopoly in the telephone market, and didn't allow you to attach anything to the network that it didn't own. This had been the law for decades. So yes, going from that environment of legally-mandated monopoly to a system of regulated competition is a big improvement.

One reason that Carterfone worked so well is that the telephone industry had been basically static for the preceding decades. Because disruptive innovation had previously been completely illegal, there was no need to worry that Carterfone would stifle it. Because the previous system was so bad, Carterfone was virtually all upside and no downside.

This is nothing like the modern Internet industry. As a practical matter, you can attach almost anything you want to most major residential broadband networks in the United States. Some things are formally banned by the providers' terms of service, but these restrictions are rarely enforced.

And unlike the telephone network of the 1960s and 1970s, today's Internet marketplace continues to evolve rapidly. A decade ago, there was no broadband service to speak of. Five years ago, wireless Internet access was outrageously expensive and too slow to be useful. We have no idea what the market for Internet access will look like a decade from now. The Carterfone-era FCC had the luxury of regulating in an environment where few unexpected changes were likely to occur. Today's FCC would be regulating in an environment where changes are a virtual certainty.

Also, it seems to me that you're engaging in a bit of cherry-picking here. The FCC screwed up the telecom market for the bulk of the 20th Century. For a couple of decades from the late 1960s to the early 1980s, they made some good decisions. If you can claim those two decades as evidence that the FCC can get things right, then I can cite the 1930s, 1940s, 1950s, early 1960s, and much of the last decade as examples of how the FCC can get things wrong. Certainly we can all hope that network neutrality regulations turn out like Carterfone rather than the 1930s, but I wouldn't put my money on it.

Brett Glass

I think that Adam's arguments about unintended consequences are good ones, and shouldn't be rejected as desperate. Whenever regulation is imposed, larger and more moneyed players will always have a greater ability to turn the regulations, or the regulatory system, to their advantage than smaller ones. In short, we do not know what the consequences will be (they can, in fact, hinge on single words in reams of regulations and legislation), but we can safely say that they will benefit parties with money and political influence. In fact, as a small, independent ISP, I can say with assurance that I and many of my colleagues will be in danger of extinction under such a regulatory regime. And no large company will step in to fill our shoes in the rural areas we cover. If we're gone, much of rural America will fall off the Net.

Richard is absolutely correct on another point, however: “Network neutrality” is an attempt to shackle the Internet with regulations that, essentially, would turn it into the Bell System of old. (It's no wonder that “network neutrality” advocates always begin their arguments with the false claim that the Internet is a “duopoly” and is therefore already like the old Bell System.) Remember when long distance phone calls cost a dollar or more per minute? When there were serious questions about whether you could even use a modem with an acoustic coupler without connecting “unauthorized” equipment to the telephone network and therefore violating government-backed telephone company rules and regulations? Please, let's not go there again.

sjschultze

You're talking about Carterfone and the Computer Inquiries? I think it's important to keep in mind the context.

I'm talking about the three things I initially mentioned: the non-discriminatory safeguards in common carriage, the Computer Inquiries (particularly Computer II), and Carterphone (to a lesser degree). The first two most closely resemble net neutrality whereas Carterphone is more of a complement. Computer II occurred in an environment especially wrought with technological uncertainty.

I'm not cherry picking in the least. These are the decisions that most clearly relate to the net neutrality debate. They deal directly with non-discrimination and how those mandates apply at different layers of the network.

You'll get no disagreement from me that the FCC royally botched rules from the 30's to the present, and I describe this in the context of broadcast regulation at length in my thesis. But all that this means is that you are arguing that in general regulation tends to go awry, and on that we agree.

There is however a striking blindness on the part of neutrality opponents to the very direct and relevant legacy of successful non-discrimination regulation in the history of telecommunications policy.

http://bennett.com/blog Richard Bennett

Indeed, it would be great if our battling grad students would grasp the fact that the outcome of their argument has already been determined by their mutual acceptance of some sort of telecom regulatory model for the Internet.

The Internet may be hard to understand, but it's clearly not just another telecom network. The FCC has no history of tailoring routing policies and broadband service plans, so if it wants to go in that direction, it had best be out front about it, propose some rules and go through the process. The stealth rule-making model is not helping anybody.